US economic policy changes likely to impact Cambodia’s trade
US economic policy changes likely to impact Cambodia’s trade
A recent analysis by CBRE Cambodia highlights the potential risks and opportunities for Cambodia’s upcoming trade and investment trends as US President-elect Donald Trump and his administration gear up to take office for the second term as US President.
According to the firm’s findings, increased protectionist trade policies for the US market under Trump could potentially deter Cambodian exports to the market, and have a knock-on effect on the Kingdom’s foreign direct investment (FDI). However, on the upside, improving US consumer demand and a strengthening US dollar may also pose several upsides for Cambodian trade and investment.
The report, “CBRE Viewpoint: What Trump 2.0 means for Cambodia’s Market”, stated that the shift back to a Trump administration for the US has far reaching implications for the global economy, including the changing dynamics of US-China relations, the global supply chain, and economic prospects of countries such as Cambodia.
According to the analysis, Trump is likely to pursue tax cuts for US businesses and consumers, as well as imposing tariffs on incoming US imports.
According to CBRE, such protectionist policies, if pursued by the incoming US president, are likely to accelerate supply chain localization in the US, posing strategic challenges to international exporters heavily reliant on the US market buyers.
In this case, manufacturers in China and the Asia-Pacific region could face rising production costs due to heightened US tariffs, compelling companies to diversify their supply chains.
The report noted that this may compel production shifts from China to India, Vietnam, Thailand, Malaysia and Cambodia, seeking more cost-efficient alternatives to afford new costs of entry into the US market.
In this case, shifts in the US-China trade relationship could indirectly benefit Cambodia by encouraging more factory and supply chain relocations outside of China.
Coupled with favourable investment incentives, availability and affordability of labour and real estate, and improving infrastructure, Cambodia is becoming well positioned for such production relocations, the report stated.
On the other hand, Cambodia’s reliance on Chinese investments may pose a vulnerability to changes in US economic policy, the report added.
According to CBRE, “If US-China tensions escalate, it could hinder Chinese economic growth and decrease the flow of Chinese foreign direct investments (FDI) into Cambodia, particularly in the non-manufacturing sectors.”
On top of this, it is possible that Trump might extend tariffs on Chinese supply chains located in the Asia-Pacific region, targeting China+1 producers that are supplying the US market, including those located in Cambodia.
In this case, although Cambodia may not face direct tariffs, there could still be potential tariffs targeting China under the ‘rule of origin’ regulations.
Manufacturers in Cambodia that are heavily reliant on Chinese inputs would be significantly impacted if the US government pursues such extensions of trade tariff policies on China.
Outside of commercial consideration, the CBRE report also contends that an ‘America First’ US administration under Trump might choose to limit financial aid and support for offshore multilateral initiatives, adversely affecting Cambodia, which has been granted various financial and technical support from the US government in recent years, especially in regards to developing healthcare and education.
In this scenario, shrinking US development aid could affect Cambodia’s market efficiency and improvement in the longer term.
As demonstrated by CBRE’s analysis, Cambodia is particularly vulnerable to changes in US trade policy because it represents one of its most valuable trading partners.
Currently, the US is Cambodia’s largest export destination, as noted in the report, citing that in 2023 alone, Cambodia’s exports to the US reached a value of $8.9 billion, which is 39.3 percent of the Kingdom’s total exports. Key exports last year included textiles, machinery, footwear and plastics.
Yet this strong trading alliance also holds potential upsides for Cambodian-based manufacturers and exporters, if Trump successfully buoys the US market.
Trump’s potential domestic policies of lower corporate taxes and deregulation may lead to increased US consumer spending, noted CBRE, which in turn could increase demand for Cambodian made export products into the market.
Meanwhile, given Cambodia leverages the US dollar as its dual currency, the report said that a strengthening exchange rate could also benefit Cambodia’s relative business strength, stabilizing financial markets amid global volatility, and supporting inward investments.
